4 European Economic Recovery Plan: energy
projects
| (30405)
5972/09
COM(09) 35
| Draft Regulation establishing a programme to aid economic recovery by granting Community financial assistance to projects in the field of energy
|
| Legal base | Articles 156 and 175EC; co-decision; QMV
|
| Document originated | 28 January 2009
|
| Deposited in Parliament | 4 February 2009
|
| Department | Energy and Climate Change
|
| Basis of consideration | EM of 12 February 2009
|
| Previous Committee Report | None, but see footnotes 16 and 17
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| To be discussed in Council | See para 4.7 below
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information awaited
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Background
4.1 On 26 November 2008, we reported on a Commission Communication[16]
(A European Economic Recovery Plan), which sought to develop
an overall Community strategy in response to the financial crisis,
notably by a major injection of an additional €200 billion
purchasing power into the economy. That approach was subsequently
endorsed by the European Council on 11-12 December 2008, which
also supported increased Community spending in a number of areas,
including €5 billion for energy, the broadband internet and
rural development. The Commission has now brought forward this
draft Regulation, which sets up a European Energy Programme for
Recovery, and we are reporting separately on a further proposal
dealing with the other two areas.[17]
The current proposal
4.2 The draft Regulation would establish three sub-programmes,
which the Commission says will not only address the immediate
economic situation, but also contribute to security
of energy supply and a reduction of greenhouse gas emissions,
as envisaged in the Second Strategic Energy Review.[18]
The sub-programmes cover
gas and electricity interconnections, offshore wind energy, and
carbon capture and storage, with an overall financial envelope
for 2009 and 2010[19]
of €3.5
billion (of which €1.75
billion would be for interconnection projects, €500
million for offshore wind energy, and €1.25
billion for carbon capture and storage).
4.3 The Regulation also lays down the criteria which
the projects in each area would need to meet and the responsibilities
of the Member States involved for technical monitoring and financial
control, and it identifies a number of individual projects which
meet the necessary conditions. Subject to the usual comitology
procedures, the Commission will select for funding specific proposals
put forward in order to realise each project, based on their technical
and financial soundness.
Gas and electricity projects
These would need to contribute to the security and
diversification of energy supplies; optimise the capacity of the
energy network, particularly across borders; strengthen economic
and social cohesion by reducing the isolation of less-favoured
and island regions; facilitate the connection of renewable energy
resources; and the safety, reliability and inter-operability of
interconnected networks. Priority would be given to networks which
support the internal energy market, which address bottlenecks,
and which overcome environmental, technical and financial obstacles.
The proposal
identifies 13 gas projects, totalling some €1.025 billion
(of which one — the Germany-Belgium-UK pipeline —
would be of direct relevance to the UK), and 6 electricity projects,
totalling €705 million (with the UK interest here relating
to the proposed interconnection between the Republic of Ireland
and Wales). In deciding which individual proposals should be selected,
the Commission also has to take into account the extent to which
the assistance given (of up to 50% of the eligible costs) will
stimulate public and private finance.
Offshore wind projects
The Commission has identified 5 projects, two of
which — the North Sea grid, and the Aberdeen offshore wind
farm — involve a UK interest, and which have been selected
on the basis that they are ready for implementation; are innovative
whilst building on well established concepts; are capable of acceleration
in response to financial stimulus; are large scale, with a cross-border
significance; and where the results will be disseminated in accordance
with the Strategic Energy Technology Plan [20]
In order to be selected, individual proposals would have to include
substantial capital expenditure in 2009 and 2010 and be led by
a commercial undertaking.
Carbon capture and storage
The Commission has identified 11 projects, of which
four — Kingsnorth, Longannet, Tilbury and Hatfield, Yorkshire
— are in the UK, but says that assistance (of up to 80%
of eligible costs) will be granted to no more than 5 of these,
with a maximum of €250 million for any one project, and with
no more than one project being selected in any one Member State.
Proposals will need to demonstrate that they can capture at least
85% of carbon dioxide in power generating installations with at
least 300 MW output, and can transport this and geologically store
it safely underground. In addition, the project must involve substantial
capital expenditure in 2009 and 2010, and promoters must undertake
to make available to the wider industry any generic knowledge
which is generated.
4.4 The Commission also addresses the question of
funding, pointing out that it has already tabled in connection
with the European Economic Recovery Plan a proposal[21]
to revise the Multiannual Financial Framework for 2007-13 to make
additional funds available under heading 1A (Competitiveness for
growth and employment). It now suggests that resources not required
for 2008 under the ceiling of heading 2 (Preservation and management
of natural resources) should be transferred to heading 1A to fund
these energy projects.
The Government's view
4.5 In his Explanatory Memorandum of 12 February
2009, the Minister of State at the Department of Energy and Climate
Change (Mr Mike O'Brien) says that the Government supports using
the major part of any Community recovery plan to pursue energy
and climate change objectives, and that it also supports the focus
on energy infrastructure, offshore wind and carbon capture and
storage as contributing to improving energy security and transforming
the Community into a competitive low carbon economy. He adds that
the UK will seek to ensure that the support in question is, so
far as possible, used to deal with market failures, accelerating
projects which secure the Community's objectives, enhancing energy
security following the recent gas dispute between Russia and Ukraine,
and achieving climate change objectives.
4.6 However, he points out that the Commission has
not yet supplied an impact assessment on the grounds that "there
has not been time", adding that one may be required at a
future date when the details have been clarified, and that the
UK will be pressing for a proper assessment of the economic case
for projects as they are selected. He also says that the Government
will be seeking greater clarification on the definitions, criteria
and list of projects, and that it is concerned about the proposed
approach to financing. He adds that the UK will work with like-minded
Member States to ensure that the Commission explores all other
possibilities for meeting the additional resources from the existing
Financial Framework (including appropriate redeployment, re-profiling
of expenditure, and the use of existing margins), and that it
will argue that the financial aspects of the package as a whole
should be agreed before the proposal can be adopted. The Minister
also points out that the UK share of the €3.5 billion expenditure
envisaged would be around €750 million.
4.7 The Minister says that the proposal was expected
to be discussed informally at the Energy Council on 19 February,
with formal agreement likely to be sought either at the General
Affairs Council on 23 February or the European Council on 19 March.
Conclusion
4.8 This document gives rise to three separate
issues — whether the measures proposed should be taken,
how they should be achieved, and the level and manner of their
funding. It is clear that the decision that a sum of some €3.5
billion should be devoted to energy-related projects was taken
by the European Council in December 2008, and, as we have noted,
the funding of these projects is linked closely to the changes
in the Multiannual Framework Agreement for 2007-13, proposed in
the Communication put forward by the Commission in December 2008.
It seems to us that this last issue is one best pursued through
that more general document, rather than in relation to individual
proposals such as this one (and those on rural development and
broadband).
4.9 However, as we have indicated, there are a
number of other detailed points still outstanding on the current
proposal, including not least the lack of an overall impact assessment
and the need for individual projects to be subject to a proper
economic assessment. We would like to have further information
on these, and, whilst we are reporting the document to the House,
we think it right to hold it under scrutiny.
16 (30213) 16097/08: see HC 19-i (2008-09), chapter
4 (10 December 2008). Back
17
See chapter 16 of this Report. Back
18
(30198) 15944/08: see HC 19-iii (2008-09), chapter 2 (14 January
2009). Back
19
The main body of payments would be made between 2009 and 2012,
with the last payments, notably for carbon capture and storage,
likely to take place in 2014-15. Back
20
(29194) 15458/07: see HC 16-vii (2007-08), chapter 12 (9 January
2008). Back
21
(30280) 17606//1/08: see HC 19-iii (2008-09), chapter 7 (14 January
2009) and chapter 7 of this Report. Back
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